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English speaking lawyers in Malaga (Andalucia / Costa del Sol) specialized in urban & rustic property law

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MORTGAGES IN SPAIN TO BUY PROPERTY

Mortgages in Spain to buy property

Mortgages in Spain to buy property

Fixed rate, variable rate interest & Euribor

If you want to buy a property with a Spanish mortgage you should know that the standard in Spain is the variable interest. The Euro Interbank Offered Rate, also called Euribor, is the reference rate for variable-rate mortgages and is currently at very low levels. Most mortgages in Spain are established according to the Euribor plus the interest rate offered by the bank.

Some banks offer fixed-rate mortgages but the number of fixed-rate mortgages obtained in Spain is very low compared to that of variable-rate mortgages.


A mortgage in Spain or another country?

In Spain, for people who are non tax residents, mortgages have higher interest rates than for tax residents, about +1,50% to +2,00%.

If you are non-tax resident in Spain and you are thinking of getting a mortgage to buy a home in Spain, it is very likely that a bank in your tax-residence country can offer you a better interest rate than a Spanish bank. Therefore, you should try to find out which banks in your country give mortgages in Spain.


Ways to reduce the interest rate 

In Spanish mortgages with variable-interest usually offer a series of extra products are offered that may reduce the interest rate of your mortgage loan. Each of these financial products / conditions can reduce the interest rate between 0,25% - 0,50%, with a maximum of non residents of 0,75% en 1,00%.

Some of these products / conditions are:

  • Setting up a direct credit of your salary or pension
  • Keeping a minimum monthly balance in the account linked to the mortgage
  • Signing up online banking or a virtual mailbox
  • Direct debits of service companies (water, electricity, taxes, etc.)
  • Having a debit/credit card
  • Having a pension plan with a minimal yearly contribution
  • Taking a life insurance and a house insurance / contents insurance


Starting the procedure with the bank

If you already know the bank where you want to apply for your mortgage, we suggest that you apply for the financial approval of the mortgage.

At this stage you will provide the bank with a complete list of your income and loans as well as your employment status and the amount of the mortgage loan you need. The bank will enter all these details into the system and tell you if they would approve the mortgage at your income level.

Through this, you can save time and money since you can find out, right from the start, that the bank will not give you a mortgage and it will not be necessary for you to provide all the financial documentation at the beginning. Besides from this it´s not necessary yet to pay the taxation of the property by the bank. This documentation for the bank, by the way, needs to  include an extract (´nota simple´) of the Land Book Registry, the Registro de la Propiedad, of the property you are interested in buying. If the bank analyses your financial details and cannot grant you a mortgage, you always have the possibility to go to a different bank.


Extra costs of the Spanish mortgage

In addition to the financial conditions of the mortgage, obtaining a mortgage in Spain has a number of associated expenses:

  • Legal expenses:

These are usually between 3% - 4% of the amount of the mortgage. They refer to taxes, the notary´s invoice (the Mortgage Deeds are different from the Title Deeds and so they are charged separately), the invoice from the Land Book Registry and processing fees. These expenses are the same regardless of whether the mortgage is obtained from a Spanish or a foreign bank.

  • Solicitor fees:

Even though you can negotiate your mortgage directly with the bank, it is advisable for your solicitor to help you with this process as you will obtain professional advice. Besides of this his work with the bank will be more efficient because he knows the different conditions of the banks, the can check the Spanish general Terms & Conditions and he can negotiate on your behalf.

  • Extra bank expenses:

Opening fee (usually 0,5% - 1% of the mortgage), obliged home insurance (contents insurance) and life insurance for each mortgage account holder.

On this point, I would like to make a special mention about the life insurance policy that most banks usually require to obtain. This insurance policy is obtained for the mortgaged amount and guarantees that the bank can collect the amount due to the bank from the insurance company in the event that the account holders die.

Life insurance is an interesting product for mortgage holders but it may involve a high premium, especially if the insured people are elderly or have any health problems. This is because, in these cases, the premium will be higher as the risk that the mortgage holders die increases. It´s important to know that after the first year you can switch from insurance company to one that offers you better conditions on your life insurance.

It is also common for some banks to require you to pay a single premium for this life insurance policy, i.e., when the mortgage is granted, the bank already charges you for the total insurance premium for the entire mortgage period.

It is important for you to have a summary chart of ALL mortgage costs, so you can know the net amount of the mortgage (after deducting expenses) you will have available to pay for the property.


Legally binding mortgage offer

Once the bank confirms that your mortgage is approved, the legal document that guarantees this is the binding offer (´oferta vinculante´). This bank document functions as a contract and binds the bank to giving you the mortgage under the terms established in the document. The binding offer is usually valid for one month but it may not be valid for less than ten days.


Recommendations when buying a property with a mortgage 

Since the final approval of the mortgage by the bank will take 2 or 3 weeks. Therefore it´s wise to start the mortgage procedure as soon as possible, even if you haven´t selected a definitive property yet.

Have you already decided on the property you want to buy, but you do not yet know if you are going to obtain a mortgage? In this case you could try to negotiate with the seller that the reservation document and/or private purchase contract are ´subject to mortgage´. This clause avoids that you would lose your reservation fees and/or down payment if no bank in the end doesn´t grants you a mortgage loan. However, most (Spanish) sellers do not like to sign contracts that are subject to the mortgage so the best thing is to have everything prepared with the bank so that it takes as little as possible to receive a reply.

Also please keep in mind that not all banks are willing to grant mortgages for house in the countryside, or only for a limited percentage.


Saving money by subrogation of a mortgage

If you are a home owner with a Spanish mortgage than -after one year- you have the right to subrogate your mortgage to another band with a lower interest rate of better conditions. In this case the new bank will pay the rest of the loan plus the transfer commission (if this exists) to your current bank and you will pay your mortgage from that moment to the new bank according to the new conditions.

The subrogation cost is very low compared to the cost of signing a new mortgage. Therefore, if the interest rate that the bank offers you is lower, it is very likely for subrogation to be beneficial to you.

 

Read the extended information about this subject in our pdf-file: Mortgages in Spain to buy property.

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

BIG INCREASE IN THE LIFETIME MORTGAGE DEMAND

More lifetime mortgages (reverse mortgage) Spain

More lifetime mortgages (reverse mortgage) Spain

Lifetime Mortgage (reverse mortgage)

According to the report published by “Optima Mayores” Advisers, the demand of lifetime mortgages has increased to 17% (19,900 applications) until April in comparison to last year same four-month period.

This increase in the lifetime mortgage demand matches the senior citizens’ growing needs to obtain an income and the better knowledge of this product in Spain, where it was first launched in 2004. Spanish Senior citizens’ pensions are at 40% below the European average, what indicates their necessity to face their retirement financing with a peace of mind. Regarding British senior citizens, the Euro and Pound Sterling exchange rate fluctuation has also reduce their earnings.

What is a lifetime mortgage?

A lifetime mortgage is a financial product that consists of a loan for seniors aged 65 or older or dependents, secured against the home where they live. They retain ownership of their home until they die, when their inheritors shall repay the loan or sale the property.

The maximum loan to be granted is based on a percentage of the property appraisal value. Then, the homeowner may receive a regular fixed amount or a lump sum payment.

Who qualifies for a lifetime mortgage?

The following requirements shall be fulfilled to qualify for a lifetime mortgage:

-        The applicant or the selected beneficiaries shall be aged 65 or older; or otherwise, they shall be individuals with high to severe dependency levels.

-        The borrower shall receive the money from the loan in regular fixed amounts or a lump sum payment (incomes).

-        Only the creditor (banks or savings banks) is entitled to demand the repayment of the debt and the mortgage foreclosure when the borrower dies, or if provided in the agreement conditions—when the last of the borrower’s beneficiaries die. The mortgaged property shall be valued and insured according to the Spanish legislation in force.

These are the official requirements to be protected by the Spanish legislation regulating this type of loans and to be entitled to the tax advantages established by this legislation.

Clients and banks may freely agree about lifetime mortgage transactions which include a varied set of terms and conditions; consequently, a professional advisor’s counselling in this proceeding is a determining factor for the good end of the agreement to enjoy the best advantages and conditions available.

Spanish legislation regulating lifetime mortgages

In Spain, this type of mortgages are regulated by Law 41 of 7th of December 2007—Mortgage Market Reform legislation.  This Law provides that the lending institution is obliged to offer an independent advice to individuals, so that the consumers’ rights are preserved and the economic and financial conditions suit their needs. This counselling and negotiation tasks are normally provided by specialised lawyers and companies offering this service to private customers.

If you are thinking about a mortgage which best suits your economic needs, take your time and ask for advice to specialised lawyers. They will ensure the best deal for you.

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

Contact

C&D Solicitors S.L.P.
Calle La Noria , Edif. Recreo II, 1-15
29793 Torróx-Costa (Málaga), Spain
(Entrance at backside of building)

T/F: +34 - 952 532 582
M: +34 - 677 875 078 (Gustavo Calero Monereo)
M: +34 - 659 218 470 (Francisco Delgado Montilla)

Monday, Tuesday, Thursday: 09:30 - 18:30
Wednesday, Friday: 09:30 - 15:30